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7 things you should know about the Panama Papers

At least 12 world leaders are implicated in offshore schemes by the biggest ever leak of financial documents

By Henry Zeffman Henry Zeffman

1. The leak centres on Mossack Fonseca.

Mossack Fonseca is a law firm headquarted in Panama but also operating in tax havens such as Switzerland, the British Virgin Islands and the British crown dependencies: Guernsey, Jersey and the Isle of Man.  More than half of its companies are registered in British-administered tax havens. The firm incorporates companies in offshore jurisdictions as well as administering offshore firms on an ongoing basis on behalf of its clients.

The firm has been operating for 40 years and never been accused of criminal wrongdoing. There is nothing illegal about using offshore companies to avoid domestic taxes, and business people in some troubled countries secure their assets offshore to protect them from plunder by criminals or the government.

Mossack Fonseca has fiercely denied any wrongdoing, stating that “we routinely deny services to individuals who are compromised” and that “the vast majority of our clients use companies we incorporate for legitimate uses”.  

2.  Lots of world leaders and their associates are implicated.

Those associated with offshore accounts facilitated by Mossack Fonseca include: the King of Saudi Arabia, the president and prime minister of Azerbaijan, the Pakistani prime minister, the president of Ukraine, and the former interim prime minister and vice-president of Iraq. The families of at least 8 past and present members of China’s ruling politburo also stored wealth offshore, as did close associates of Bashar al-Assad and Hosni Mubarak.

In Iceland, the ripples from the leak might bring down the government. The files reveal that in 2007,  Sigmundur David Gunnlaugsson, who has been the country’s prime minister since 2013, set up with his wife a company in the British Virgin Islands to hold investments in Iceland’s banks. They were living in the UK at the time they were advised to set up the company. His office now says the shareholding was an error that was corrected in 2009, when he sold his 50% stake to his wife for $1. Gunnlaugsson never declared his shares in the company in the Icelandic register of MPs’ interests. He looks set to face a no confidence vote in the Icelandic parliament, and at the time of writing nearly 25,000 people have signed a petition calling for his resignation – that’s about 8% of the country’s population.

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3. Vladimir Putin has lots of suspiciously wealthy friends.

Perhaps the most incendiary story contained in the leak is the apparent existence of a network of offshore deals and loans worth $2 billion, where the companies and individuals involved are connected by their mutual closeness to President Putin.

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The files reveal that Sergei Roldugin, one of Putin’s oldest friends and godfather to his eldest daughter, owns 12.5% of Russia’s biggest TV advertising agency, and 15% of a Cyprus-based company called Raydar. But Roldugin is not a businessman: he is a relatively successful cellist and former professor at the St Petersburg Conservatory. Offshore companies officially owned by Roldugin appear to have been channelled money by state banks and other offshore companies. Some of the money was lent back onshore at high interest rates, with the profits sent to Swiss bank accounts.

Putin’s spokesman today said that “it’s obvious that the main target of such attacks is our president”, and that questions about Putin’s involvement in any such scheme were aimed at destabilising Russia ahead of parliamentary elections in September. He said that media organisations were focusing on Putin over other world politicians, and that the International Consortium of Investigative Journalists, one of the main publishers of the leaks, has ties to the US government.

Russia Today, the state-funded English-language broadcaster, reports on the allegations with the headline: “‘Goebbels had less-biased articles’: Public slams MSM for Putin focus after Panama papers leak”.

4. The British political establishment is touched too.

Former Conservative minister Michael Mates, Tory peer Baroness Sharples and former party donor Lord Ashcroft are all named in the files. Lord Ashcroft has denied involvement with Mossack Fonseca.

David Cameron’s late father, Ian, is also named, although his engagement with offshore tax arrangements is not a new story.

A Downing Street spokesman declined to comment today on whether Cameron family money is held in an offshore fund. 

5. This leak is enormous, but also small.

The 11 million leaked files amount to 2.6 terabytes of data, significantly more than the 2010 Wikileaks government files leaks and the 2013 Edward Snowden leak. This is the largest leak of financial documents in history. The details of 214,000 companies incorporated by Mossack Fonseca as well as the firm’s 14,000 clients are now in the hands of a wide multinational consortium of investigative journalists.

But in another sense, the leak only amounts to the tip of a very large iceberg. Mossack Fonseca is only the 4th biggest offshore law firm. The Panama Papers are just a taster of all the activity that goes on offshore.

6. The papers opens a new front in the Fifa corruption scandal.

The papers show a series of business connections between Juan Pedro Damiani and Eugenio Figueredo. The latter is a former Fifa vice-president accused of corruption, the former is a lawyer and member of the Ethics Committee responsible for reforming Fifa and rooting out corruption.

Barcelona striker Lionel Messi and his dad are named too, as is the suspended UEFA President Michel Platini, although there is no suggestion of criminal wrongdoing.

7. David Cameron is hosting a summit to discuss tax havens next month.

The PM has generally staked out a firm stance against legal use of offshore accounts, saying in 2012 that: “frankly some of these schemes where people are parking huge amounts of money offshore and taking loans back just to minimise their tax rates, it is not morally acceptable. It isn’t morally right to do that”. 

In 2013, he asked fellow G8 leaders to sign up to a set of core tax principles that opposed corruption and money laundering, and in June this year the government is introducing a new register identifying the real owners of UK companies, whether their names appear as shareholders or not.

Cameron had already planned a summit to discuss offshore issues was already in May. It takes on even greater saliency now.